URS Corporation Reports Fiscal 2007 Year-End Results
URS Corporation (NYSE: URS) today reported its financial results for the fiscal year ended December 28, 2007. Revenues increased 27% to $5.38 billion from $4.22 billion in fiscal 2006. Net income for fiscal 2007 was $132.2 million, a 17% increase from $113.0 million in fiscal 2006. Earnings per share (EPS) for fiscal 2007 was $2.35, fully diluted, a 7% increase from fiscal 2006 EPS of $2.19.
The Company’s fiscal 2007 results include six weeks of operations of the former Washington Group International, Inc., which URS acquired on November 15, 2007. Excluding the results of the Washington Division, as well as costs associated with the acquisition, URS’ EPS for the year would have been $2.58, an 18% increase from fiscal 2006. A reconciliation of EPS, excluding the Washington Division results and the costs associated with the acquisition, to GAAP EPS is attached to this release and is available on the investor relations page of URS’ website at www.urscorp.com.
As of December 28, 2007, the Company’s backlog was $18.71 billion, compared to $4.64 billion as of December 29, 2006. The increase in backlog resulted from the acquisition of Washington Group and new contract awards during the year.
Commenting on the Company’s financial results, Martin M. Koffel, Chairman and Chief Executive Officer, stated: “URS performed very well in 2007. Our private sector and state and local government businesses were particularly robust as a result of favorable trends in the power market and strong infrastructure spending. We generated $311.9 million in cash from operations. We repaid $239 million in bank debt during the year, including $125 million of the debt related to the Washington Group acquisition.”
Mr. Koffel continued: “Our outlook for the Company reflects the strength of the power business, which was bolstered by our acquisition of the Washington Group, and the positive trends in our federal government business, which includes our work for the U.S. Departments of Defense and Energy. At the same time, we expect a near term slowdown in public infrastructure spending as a result of the current economic downturn and the increasing budget challenges facing state and local governments.”
“While the Washington Group acquisition has further diversified our business mix and enhanced our resiliency to downturns in individual markets, it is prudent to assume that, as a leading infrastructure firm, our 2008 results will be tempered by the weakness in this market. Longer term, we believe that the fundamentals for the infrastructure market remain positive, given the critical need for investment in the country’s highways and bridges, transit systems, public buildings, and water and wastewater facilities.”
Weighted-average shares outstanding for purposes of calculating diluted EPS were 56.3 million in fiscal 2007, compared with 51.7 million in fiscal 2006. The increase in weighted-average shares outstanding is the result of new shares issued in connection with Company’s acquisition of the Washington Group, as well as additional shares issued pursuant to the Company’s 1999 Equity Incentive Plan and Employee Stock Purchase Plan.
Fourth Quarter 2007 Results
For the fourth quarter of fiscal 2007, the Company reported revenues of $1.74 billion, net income of $26.4 million, and diluted EPS of $0.39. Excluding the results of the Washington Division and the costs associated with the acquisition, URS’ fourth quarter EPS would have been $0.56. A reconciliation of EPS, excluding the Washington Division results and the costs associated with the acquisition, to GAAP EPS is attached to this release and is available on the investor relations page of URS’ website at www.urscorp.com. For the fourth quarter of fiscal 2006, the Company reported revenues of $1.08 billion, net income of $26.3 million, and diluted EPS of $0.51.
Weighted-average shares outstanding for purposes of calculating diluted EPS were 67.5 million in the fourth quarter of fiscal 2007, compared with 52.0 million in the fourth quarter of fiscal 2006.
Business Segment Results
URS Division. For fiscal 2007, the URS Division reported revenues of $3.4 billion and operating income of $221.5 million, compared to revenues of $2.8 billion and operating income of $191.7 million for fiscal 2006.
For the fourth quarter of fiscal 2007, the URS Division reported revenues of $869.6 million and operating income of $43.0 million, compared to revenues of $739.7 million and operating income of $48.7 million for the fourth quarter of 2006.
EG&G Division. For fiscal 2007, the EG&G Division reported revenues of $1.5 billion and operating income of $81.9 million, compared to revenues of $1.4 billion and operating income of $71.4 million for fiscal 2006.
For the fourth quarter of fiscal 2007, the EG&G Division reported revenues of $423.8 million and operating income of $23.1 million, compared to revenues of $342.9 million and operating income of $14.0 million for the corresponding period in 2006.
Washington Division. On November 15, 2007, Washington Group International, Inc. was acquired by URS and began operations as the Washington Division of URS Corporation. Between November 16 and December 28, 2007, the Washington Division reported revenues of $448.4 million and operating income of $16.9 million.
Summary of New Segment Reporting Structure
Following the acquisition of the Washington Group, URS re-aligned certain businesses among its three operating segments. These changes were effective for fiscal year 2008. The following is a description of the three operating segments including these changes.
The URS Division performs program management, planning, design and engineering, and construction management services for federal agencies, state and local government agencies, and private sector companies. In addition to serving federal clients such as the U.S. Departments of Defense and Homeland Security, the General Services Administration, the U.S. Environmental Protection Agency and the USPS, the URS Division provides services on a wide range of highway, bridge, rail, water and wastewater and other infrastructure assignments, facilities and environmental remediation projects.
The EG&G Division provides program management, systems engineering and technical assistance, operations and maintenance, and construction services to the federal government. EG&G’s clients include the U.S. Departments of Defense, State and Homeland Security, the Treasury Department, NASA and classified agencies.
The Washington Division provides program management, planning, design and engineering, construction, operations and maintenance, and decommissioning and closure services. It serves customers in the power, energy, mining and manufacturing industries, as well as government agencies, including the U.S. Department of Energy. The Washington Division also includes URS’ Advatech joint venture with Mitsubishi Heavy Industries, which provides emissions control services for the power industry.
Fiscal 2008 Earnings Outlook
URS expects its fiscal 2008 revenues to be approximately $9.8 billion. The Company expects that GAAP net income will be between $187 and $197 million and GAAP EPS will be in the range of $2.24 to $2.36 for fiscal 2008.
In its preliminary allocation of the costs of acquiring the Washington Group, the Company established intangible assets, for which amortization began as of the purchase date. As a result, during fiscal 2008, URS will record a non-cash charge for amortization of the intangible assets. URS expects that fiscal 2008 net income, exclusive of the amortization of intangible assets, will be between $218 and $228 million, or between $2.61 and $2.73 per share on a fully diluted basis. A table reconciling net income and EPS excluding the charge for amortization of purchased intangibles to GAAP net income and earnings per share is attached to this release and is available on the investor relations section of the Company’s website at: www.urscorp.com.
The Company expects its effective tax rate in 2008 will be approximately 41.5%, compared to 41.4% in 2007. The Company’s fully diluted weighted average shares outstanding for 2008 are expected to be approximately 83.5 million, compared with 56.3 million in 2007. Finally, we expect net interest expense in 2008 to be approximately $88 million.
Webcast Information
URS will host a dial-in conference call on Wednesday, February 27, 2008 at 11:00 a.m. (EST) to discuss its fourth quarter and year-end fiscal 2007 results. A live webcast of this call will be available on the investor relations portion of URS’ website at www.urscorp.com.
URS Corporation (NYSE: URS) is a leading provider of engineering, construction and technical services for public agencies and private sector companies around the world. The Company offers a broad range of planning, engineering and architectural design, environmental, construction, program and construction management, systems integration, operations and maintenance, management and a wide range of specialized technical services for the U.S. federal government, state and local government agencies, Fortune 500 companies and other multinational corporations. URS provides services for transportation, hazardous waste, industrial infrastructure and process, petrochemical, general building, water/wastewater, military facilities and equipment platforms, and defense and security programs. Headquartered in San Francisco, the Company operates through three divisions: the URS Division, the EG&G Division and the Washington Division. URS Corporation has approximately 56,000 employees in a network of offices in more than 30 countries (www.urscorp.com).
TABLES TO FOLLOW
Statements contained in this earnings release that are not historical facts may constitute forward-looking statements, including statements relating to future revenues, future business trends, future growth in the power and federal markets, future public infrastructure spending, future earnings growth, future tax rates, future outstanding shares and future economic and industry conditions. The Company believes that its expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties. We caution that a variety of factors could cause the Company’s business and financial results to differ materially from those expressed or implied in the Company’s forward-looking statements. These factors include, but are not limited to: an economic downturn; changes in the Company’s book of business; the Company’s compliance with government contract procurement regulations; the Company’s leveraged position and ability to service its debt; restrictive covenants in the Company’s Credit Facility; the Company’s integration of the Washington Group International, Inc.; the Company’s ability to procure government contracts; the Company’s reliance on government appropriations; the ability of the government to unilaterally terminate the Company’s contracts; the Company’s ability to make accurate estimates and control costs; the Company’s and its partners’ ability to bid on, win, perform and renew contracts and projects; the Company’s dependence on subcontractors and suppliers; customer payment defaults; availability of bonding and insurance; environmental liabilities; liabilities for pending and future litigation; the impact of changes in regulations and laws; a decline in defense spending; industry competition; the Company’s ability to attract and retain key individuals; employee, agent and partner misconduct; risks associated with international operations; business activities in high security risk countries; third party software risks; terrorist and natural disaster risks; the Company’s relationships with its labor unions; the Company’s ability to protect its intellectual property rights; anti-takeover risks and other factors discussed more fully in the Company’s Form 10-K for the year ended December 28, 2007, as well as in other reports filed from time to time with the Securities and Exchange Commission. These forward-looking statements represent only the Company’s current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements.
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 28,2007
December 29,2006
ASSETS
Current assets:
Cash and cash equivalents, including $161,089 and $44,557 of short-term money market funds, respectively
$
256,502
$
89,502
Accounts receivable, including retentions of $58,366 and $37,368, respectively
1,015,052
680,631
Costs and accrued earnings in excess of billings on contracts in process
1,023,302
552,526
Less receivable allowances
(51,173
)
(50,458
)
Net accounts receivable
1,987,181
1,182,699
Deferred tax assets
133,888
36,547
Prepaid expenses and other assets
210,807
65,405
Total current assets
2,588,378
1,374,153
Investments in unconsolidated affiliates
206,721
15,284
Property and equipment at cost, net
357,907
163,142
Intangible assets, net
572,974
3,839
Goodwill
3,139,618
989,111
Other assets
64,367
35,500
Total assets
$
6,929,965
$
2,581,029
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdrafts
$
15,638
$
3,334
Current portion of long-term debt
17,964
19,120
Accounts payable and subcontractors payable, including retentions of $73,491 and $19,515, respectively
693,614
290,651
Accrued salaries and wages
486,853
239,235
Billings in excess of costs and accrued earnings on contracts in process
296,752
168,271
Accrued expenses and other
170,782
65,374
Total current liabilities
1,681,603
785,985
Long-term debt
1,288,817
149,494
Deferred tax liabilities
137,058
17,808
Self-insurance reserves
73,253
116
Pension, post-retirement, and other benefit obligations
156,843
78,187
Other long-term liabilities
88,735
39,283
Total liabilities
3,426,309
1,070,873
Commitments and contingencies
Minority interest
25,086
3,469
Stockholders’ equity:
Preferred stock, authorized 3,000 shares; no shares outstanding
—
—
Common shares, par value $.01; authorized 100,000 shares; 83,355 and 52,309 shares issued, respectively; and 83,303 and 52,257 shares outstanding, respectively
833
523
Treasury stock, 52 shares at cost
(287
)
(287
)
Additional paid-in capital
2,797,238
973,892
Accumulated other comprehensive income (loss)
16,635
(3,638
)
Retained earnings
664,151
536,197
Total stockholders’ equity
3,478,570
1,506,687
Total liabilities, minority interest and stockholders’ equity
$
6,929,965
$
2,581,029
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three Months Ended
Fiscal Year Ended
December 28,2007
December 29,2006
December 28,2007
December 29,2006
(unaudited)
Revenues
$
1,739,373
$
1,080,191
$
5,383,007
$
4,222,869
Cost of revenues
1,676,985
1,023,847
5,095,271
3,978,082
General and administrative expenses
15,897
12,592
56,468
43,279
Equity in income of unconsolidated affiliates
20,475
6,214
31,516
17,281
Operating income
66,966
49,966
262,784
218,789
Interest expense
16,804
3,993
27,730
19,740
Income before income taxes and minority interest
50,162
45,973
235,054
199,049
Income tax expense
21,267
18,883
97,254
84,793
Minority interest in income of consolidated subsidiaries, net of tax
2,508
807
5,557
1,244
Net income
26,387
26,283
132,243
113,012
Other comprehensive income (loss):
Pension and post-retirement related adjustments, net of tax
16,223
2,948
14,776
582
Foreign currency translation adjustments, net of tax
4,149
516
7,863
4,122
Interest rate swaps, net of tax
(3,957
)
—
(2,366
)
—
Comprehensive income
$
42,802
$
29,747
$
152,516
$
117,716
Earnings per share:
Basic
$
.40
$
.52
$
2.39
$
2.23
Diluted
$
.39
$
.51
$
2.35
$
2.19
Weighted-average shares outstanding:
Basic
66,408
50,938
55,271
50,705
Diluted
67,461
51,992
56,275
51,652
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
Fiscal Year Ended
December 28,2007
December 29,2006
December 28,2007
December 29,2006
(unaudited)
Cash flows from operating activities:
Net income
$
26,387
$
26,283
$
132,243
$
113,012
Adjustments to reconcile net income to net cash from operating activities:
Depreciation
15,797
9,480
44,826
36,438
Amortization of debt issuance costs
1,980
439
3,266
1,821
Amortization of intangible assets
6,316
292
7,066
1,542
Costs incurred for extinguishment of debt
2,897
—
2,897
162
Provision for doubtful accounts
562
2,525
2,867
8,259
Deferred income taxes
70,351
(7,697
)
69,488
(8,708
)
Stock-based compensation
4,991
5,684
25,061
18,395
Excess tax benefits from stock-based compensation
(1,870
)
(2,903
)
(8,359
)
(6,045
)
Minority interest in net income of consolidated subsidiaries
2,508
807
5,557
1,244
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process
69,951
(49,029
)
17,073
(89,628
)
Prepaid expenses and other assets
(38,869
)
14,551
(50,510
)
(12,378
)
Investments in and advances to unconsolidated affiliates
(15,937
)
(74
)
(17,300
)
(571
)
Accounts payable, accrued salaries and wages and accrued expenses
(4,244
)
30,336
64,878
33,247
Billings in excess of costs and accrued earnings on contracts in process
2,947
18,528
(11,646
)
59,614
Distributions of earnings from unconsolidated affiliates, net
29,807
2,829
43,876
27,133
Other long-term liabilities
(12,099
)
(9,850
)
(5,207
)
(2,190
)
Other assets, net
1,827
(2,045
)
(14,161
)
(16,341
)
Total adjustments and changes
136,915
13,873
179,672
51,994
Net cash from operating activities
163,302
40,156
311,915
165,006
Cash flows from investing activities:
Payment for business acquisitions, net of cash acquired
(1,253,219
)
—
(1,259,547
)
(5,028
)
Proceeds from disposal of property and equipment
2,366
—
2,700
—
Investments in and advances to unconsolidated affiliates
(5,018
)
—
(5,018
)
—
Increase in restricted cash
(1,512
)
—
(1,512
)
—
Capital expenditures, less equipment purchased through capital leases and equipment notes
(19,296
)
(8,481
)
(41,650
)
(29,314
)
Net cash from investing activities
(1,276,679
)
(8,481
)
(1,305,027
)
(34,342
)
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
Fiscal Year Ended
December 28,2007
December 29,2006
December 28,2007
December 29,2006
(unaudited)
Cash flows from financing activities:
Long-term debt principal payments
$
(166,127
)
$
(40,305
)
$
(243,353
)
$
(163,317
)
Long-term debt borrowings
1,401,314
—
1,401,314
552
Net borrowings (payments) under lines of credit and short-term notes
(1,179
)
(1,639
)
(4,928
)
1,433
Net change in book overdrafts
15,526
(13,803
)
12,304
1,787
Capital lease and equipment note obligation payments
(2,009
)
(3,384
)
(11,500
)
(13,019
)
Excess tax benefits from stock-based compensation
1,870
2,903
8,359
6,045
Proceeds from common stock offering, net of related expenses
—
—
—
—
Proceeds from employee stock purchases and exercise of stock options
446
1,508
19,166
23,974
Tender and call premiums paid for debt extinguishment
—
—
—
(162
)
Payments of debt issuance costs
(21,250
)
—
(21,250
)
—
Net cash from financing activities
1,228,591
(54,720
)
1,160,112
(142,707
)
Net increase (decrease) in cash and cash equivalents
115,214
(23,045
)
167,000
(12,043
)
Cash and cash equivalents at beginning of year
141,288
112,547
89,502
101,545
Cash and cash equivalents at end of year
$
256,502
$
89,502
$
256,502
$
89,502
Supplemental information:
Interest paid
$
12,028
$
3,373
$
22,300
$
17,099
Taxes paid
$
5,228
$
19,826
$
58,404
$
58,583
Supplemental schedule of noncash investing and financing activities:
Fair value of assets acquired (net of cash acquired)
$
2,844,286
$
—
$
2,861,174
$
1,823
Liabilities assumed
(1,024,850
)
$
—
(1,024,977
)
456
Non cash business acquisitions
$
1,819,436
$
—
$
1,836,197
$
1,367
Equipment acquired with capital lease obligations and equipment note obligations
$
3,402
$
4,008
$
17,081
$
23,512
URS CORPORATION AND SUBSIDIARIES
RECONCILIATION SCHEDULE OF THE IMPACT OF THE ACQUISITION OF WASHINGTON
GROUP INTERNATIONAL, INC.
In our earnings release for the fiscal year ended December 28, 2007, we presented earnings per share (“EPS”) excluding the impact of the Washington Group International, Inc. (“WGI”) acquisition. EPS excluding the impact of the WGI acquisition are not computed in accordance with generally accepted accounting principles (“GAAP”). We presented the amount to demonstrate the impact of the WGI acquisition on our fiscal year 2007 results. These non-GAAP measures, which provide comparability to prior year amounts, are used by investors to evaluate and measure the underlying performance of our business. EPS excluding the impact of WGI acquisition should not be used as a substitute for EPS prepared in conformity with GAAP, or as a GAAP measure of profitability.
Below are reconciliations of EPS excluding the impact of the WGI acquisition to GAAP EPS for the three months and fiscal year ended December 28, 2007.
Three Months Ended December 28, 2007
(In millions)
Pre-acquisitionURSCorporation
AcquisitionImpact
ConsolidatedResults ofOperations
(unaudited)
Revenues
$
1,291.0
$
448.4
$
1,739.4
Cost of revenues
1,230.0
447.0(1
)
1,677.0
General and administrative expenses
9.4
6.5(2
)
15.9
Equity in income of unconsolidated affiliates
5.0
15.5
20.5
Operating income
56.6
10.4
67.0
Interest expense
2.7
14.1(3
)
16.8
Income before income taxes and minority interest
53.9
(3.7
)
50.2
Income tax expense
22.8
(1.5
)
21.3
Minority interest in income of consolidated subsidiaries, net of tax
1.0
1.5
2.5
Net income
$
30.1
$
(3.7
)
$
26.4
Earnings per share:
Basic
$
.58
$
.40
Diluted
$
.56
$
.39
Weighted-average shares outstanding:
Basic
52,2
66.4
Diluted
53.2
67.5
Year Ended December 28, 2007
(In millions)
Pre-acquisitionURSCorporation
AcquisitionImpact
ConsolidatedResults ofOperations
(unaudited)
Revenues
$
4,934.6
$
448.4
$
5,383.0
Cost of revenues
4,648.2
447.0(1
)
5,095.2
General and administrative expenses
50.0
6.5(2
)
56.5
Equity in income of unconsolidated affiliates
16.0
15.5
31.5
Operating income
252.4
10.4
262.8
Interest expense
13.6
14.1(3
)
27.7
Income before income taxes and minority interest
238.8
(3.7
)
235.1
Income tax expense
98.8
(1.5
)
97.3
Minority interest in income of consolidated subsidiaries, net of tax
4.1
1.5
5.6
Net income
$
135.9
$
(3.7
)
$
132.2
Earnings per share:
Basic
$
2.63
$
2.39
Diluted
$
2.58
$
2.35
Weighted-average shares outstanding:
Basic
51.7
55.3
Diluted
52.7
56.3
(1) Cost of revenues includes $6.1 million in amortization of intangible assets arising from the acquisition of Washington International, Inc.
(2) This represents general and administrative expenses, including debt extinguishment charges, incremental audit fees for the Washington Division, and other expenses, related to the acquisition of Washington Group International, Inc.
(3) This represents interest expense from November 16, 2007 through December 28, 2007 on $1.4 billion of indebtedness incurred to acquire Washington Group International, Inc.
URS CORPORATION AND SUBSIDIARIES
RECONCILIATION SCHEDULE OF THE IMPACT OF THE AMORTIZATION OF INTANGIBLE ASSETS
RELATED TO THE WASHINGTON GROUP INTERNATIONAL, INC. ACQUISITION
In our earnings release for the fiscal year ended December 28, 2007, we also presented a range of 2008 net income and EPS excluding the impact of the amortization of intangible assets related to the WGI acquisition. Net income and EPS guidance excluding the impact of the amortization of these intangible assets are not computed in accordance with generally accepted accounting principles (“GAAP”). We presented these amounts to demonstrate the impact of the amortization of these intangible assets related to the WGI acquisition on our projected fiscal year 2008 results. These non-GAAP measures may be useful to investors seeking to compare the expected performance of our underlying business with the actual performance of our business in prior periods when no amortization of these intangible assets was required. Net income and EPS excluding the impact of the amortization of intangible assets related to the WGI acquisition should not be used as a substitute for net income and EPS prepared in conformity with GAAP, or as a GAAP measure of profitability or cash flow.
Below is the reconciliation of net income and EPS, before the impact of the amortization of intangible assets related to the WGI acquisition, to the projected GAAP net income and EPS for fiscal year 2008.
Range of NetIncome
Range of EPS
(In millions)
Before the impact of the amortization of intangible assets
$218 to $228
$2.61 to $2.73
Amortization of intangible assets
$31
$0.37
GAAP amounts
$187 to $197
$2.24 to $2.36
URS CORPORATION AND SUBSIDIARIES
BOOK OF BUSINESS
(In billions)
December 28,2007
December 29,2006
Backlog
$
18.7
$
4.6
Designations
3.1
1.6
Option years
2.5
1.0
Indefinite delivery contracts
5.7
5.2
Total book of business
$
30.0
$
12.4